Procyclicality of the Comovement between Dividend Growth and Consumption Growth
Journal of Financial Economics, Volume 139, Issue 1, January 2021, Pages 288-312
Duffee (2005) shows that the amount of consumption risk (i.e., the conditional covariance between market returns and consumption growth) is procyclical. In light of this "Duffee Puzzle", I empirically demonstrate that the conditional covariance between dividend growth (i.e., the immediate cash flow part of market returns) and consumption growth is (1) procyclical and (2) a consistent source of procyclicality in the puzzle. Moreover, I solve an external habit formation model that incorporates realistic joint dynamics of dividend growth and consumption growth. The procyclical dividend-consumption comovement entails two new procyclical terms in the amount of consumption risk via cash flow and valuation channels, respectively. These two procyclical terms play an important role in generating a realistic magnitude of consumption risk. In contrast to extant habit formation models, the conditional equity premium no longer increases monotonically when a negative consumption shock arrives because it might lower the amount of risk while increasing the price of risk.
◘◘ 2018 E(astern)FA (2018/04), 2018 MFA (2018/03), 2017 SoFiE Conference (main conference), New York (2017/06), Federal Reserve Bank of New York, New York (2017/06), 2017 AEA/AFA/ASSA (poster presentation), Chicago (2017/01), 28th Australasian Finance and Banking Conference (AFBC), Ph.D. Forum (2015/12), 28th AFBC, Asset Pricing II (2015/12), Ph.D. Seminar, Columbia Business School (2015/11), 15th Transatlantic Doctoral Conference, London Business School (2015/05), Third-year paper presentation, Columbia Business School (2015/01)
◘◘◘ winner of 28th AFBC 2nd best paper at the Ph.D. Forum (2015/12)
 The Time Variation in Risk Appetite and Uncertainty
Management Science, Vol. 68, No. 6, June 2022, pp. 3975–4004 (Lead Article)
We formulate a dynamic no-arbitrage asset pricing model for equities and corporate bonds, featuring time variation in both risk aversion and economic uncertainty. The joint dynamics among cash flows, macroeconomic fundamentals and risk aversion accommodate both heteroskedasticity and non-Gaussianity. The model delivers measures of risk aversion and uncertainty at the daily frequency. We verify that equity variance risk premiums are very informative about risk aversion, whereas credit spreads and corporate bond volatility are highly correlated with economic uncertainty. Our model-implied risk premiums outperform standard instruments for predicting asset excess returns. Risk aversion is substantially correlated with consumer confidence measures, and in early 2020 reacted more strongly to new Covid cases than did an uncertainty proxy.
◘◘ Chicago Fed seminar (2020/06), 8th HEC-McGill Winter Finance Workshop (2020/03), 9th ITAM Finance Conference (2020/02), 2019 EFA (2019/08), 2019 CICF (2019/07), 2019 EFMA (2019/06), 2019 FIRS (2019/05), 15th European Winter Finance Summit (2019/03), 2019 MFA (2019/03), 2019 AFA (2019/01), 31st Australasian Finance and Banking Conference, Sydney (2018/12), 2018 CIRF (2018/12), University of Zurich (2018/12), University of Luxembourg (2018/12), 2018 NFA (2018/09), "Machine Learning and Finance: The New Empirical Asset Pricing" hosted by University of Chicago Booth (2018/07), 2018 North American Summer Meeting of the Econometric Society (2018/06), 11th Annual SoFiE Conference (2018/06), Baruch College (2018/05), Federal Reserve Board's Conference on Risk, Uncertainty, and Volatility (2018/04), Columbia Women in Economics (2018/03), Columbia Business School (2018/03)
◘◘◘◘ winner of Global association of research professionals (GARP) research excellence award, China International Risk Forum (2018/12)
 Main Street's Pain, Wall Street's Gain
(with Yang You)
When Initial Jobless Claims (IJC) are higher than expected, investors may expect more generous Federal Government support and drive up the aggregate stock prices through the expected cash flow channel, leading to a novel ``Main Street pain, Wall Street gain'' phenomenon. This phenomenon emerges when news articles on IJC announcements mention fiscal policy keywords more. During the Covid period, firms/industries that are expected to suffer more in fundamentals, get mentioned more in legal stimulus bills, or have higher obligated funding amounts show higher individual stock returns when bad IJC news arrives. Our results suggest that investors form fiscal policy expectations.
◘◘ MFA 2023 (scheduled), AFA 2023 (scheduled), Chicago Booth Asset Pricing Conference (scheduled), Cornell University (scheduled), University of Rochester Simon (2022/11), Junior Finance Conference @ Indiana University (2022/09), Stanford SITE ``The Macroeconomics of Uncertainty and Volatility'' (2022/09), Stanford SITE ``New Frontiers in Asset Pricing'' (2022/07), NBER Summer Institute Asset Pricing (2022/07), UNC Kenan-Flager (2022/09), UW Foster (2022/09), USC Marshall Macrofinance Reading Group (scheduled), CICF (2022/06), Asian Finance Association annual meeting (2022/06), Hong Kong Poly U (2022/05), Green Line Macro Meeting (2022/4), Boston College (2021/11), University of Connecticut (2021/11), University of Cincinnati (2021/11), University of Birmingham (2021/11), 4th Annual Columbia Women in Economics Conference (2021/10)
 Do the Voting Rights of Federal Reserve Bank Presidents Matter?
Revise and Resubmit, Quarterly Journal of Economics
Voting seats at FOMC meetings rotate between Reserve Bank presidents on a yearly basis. Using detailed data on 488 FOMC meetings that took place between 1969 and 2021 and predetermined rotations of voting rights, we show that economic conditions in Reserve Bank presidents' districts affect Federal funds target rates only when those presidents hold voting seats at FOMC meetings. Federal funds futures reflect this effect of local economic conditions on FOMC decisions. Supporting the voting mechanism, we show that voting presidents dissent based on economic conditions in their districts. Reserve Bank presidents' districts are more likely to be mentioned in FOMC transcripts than are the districts of non-voting presidents. Finally, we show that the path of the target rate would have been different if economic conditions in all districts affected FOMC decisions.
◘◘ UCSD Rady (scheduled), New York Fed (scheduled), Columbia University (scheduled), the University of Massachusetts Amherst (2022/10), Carnegie Mellon University (2022/09), Boston College (2022/09)
 Risk Aversion Spillover: Evidence from Financial Markets and Controlled Experiments
(with Xing Huang)
We study risk aversion (RA) spillover from the US to several major developed economies. Using daily financial market and news data, we identify US RA events and show that the international pass-through of US high RA events is significantly higher (61%) than that of US low RA events (43%), capturing asymmetric spillover. We replicate these findings in controlled experiments where non-US subjects were primed with scenarios of US RA events. Our experimental evidence further shows that US RA events also generate asymmetric emotion changes, which can be linked to unfamiliarity and explains 20% of the RA spillover asymmetry.
◘◘ 2022 MFA (2022/03), 2022 AFA (2022/01), 2021 CIRF (2021/07), ECWFC @ WFA (2021/06), JABES seminar (2021/06), Fudan University Economics (2020/11), SAIF (2020/10), SMU (2020/11), Boston College Brownbag (2020/10), Washington University in St. Louis Brownbag (2020/10), WAPFIN @ Stern, New York (2018/09)
◘◘◘ winner of Boston College Research Expense Grant, 2018-2019
 The Global Determinants of International Equity Risk Premiums
previously titled: Variance Risk Premium Components and International Stock Return Predictability
Management Science; minor revision
We examine the commonality in international equity risk premiums by linking empirical evidence for the international stock return predictability of U.S. downside and upside variance risk premiums (DVP and UVP, respectively) with implications from an international asset pricing framework which features asymmetric macroeconomic and risk aversion shocks. We find that DVP and UVP predict international stock returns through U.S. bad and good macroeconomic uncertainties, respectively. 60% to 80% of the dynamics of the global equity risk premium for horizons under seven months are driven by U.S. economic uncertainty, whereas U.S. risk aversion appears more relevant for longer horizons. The predictability patterns of DVP and UVP vary across countries depending on their financial and economic exposures to global shocks. For those with higher economic exposures, investors demand a higher compensation for bad macroeconomic uncertainty but a lower compensation for good macroeconomic uncertainty, whereas the compensation for bad macroeconomic uncertainty decreases with financial exposure.
◘◘ 2021 AEA (2021/01), IFABS 2019 Medellín Conference (2019/12), Stanford SITE "Session 7: Asset Pricing Theory" (2019/08), NASMES Summer Meeting (2019/06), ECWFC@WFA (2019/06), FMA Global Conference in Latin America (2019/05), E(astern)FA 2019 (2019/05), MFA 2019 (2019/03), Federal Reserve Board (2019/03), Econometric Society European winter meeting 2018 (2018/12), 2018 CIRF (2018/12), Boston Macro Juniors Workshop (2018/11), Boston College Carroll (2018/11)
◘◘◘ Semifinalist, 2019 FMA Global Conference Best Paper Awards
 Risk, Monetary Policy and Asset Prices in a Global World
We study how monetary policy and risk shocks affect major asset prices (short-term interest rates, stocks, long-term bonds) in three large economies, the US, the euro area, and Japan, since the turn of the century. Examining the impact of monetary policy on risk, monetary policy does not drive asset price cycles through a risk channel. Instead, we find a strong global common component in risk shocks which is not driven by monetary policy. Comparing the impact of monetary policy and risk shocks on asset prices across countries, monetary policy spillovers are economically more (less) important for interest rates and bond prices (stock prices) than risk shocks. The US generates relatively important monetary policy spillovers, but information shocks emanating from the euro area produce the strongest effects on international stock and bond markets. We provide suggestive evidence that monetary policy effects on asset prices reflect a persistent interest rate rather than a risk premium effect.
◘◘ 2021 EFA (2021/08), 2021 EEA-ESEM (2021/08), 2021 CIRF (2021/07), 2021 CICF (2021/07), 2021 FIRS (2021/06), University of Alabama (2021/03), Bank of Spain (2021/03), BI Olso (2021/03), Florida International University (2021/02), 2021 AEA (2021/01), 2020 Annual Meeting of the Central Bank Research Association (2020/09), BI Olso (2020/08), University of Cincinnati (2020/03), 11th International Research Forum on Monetary Policy (IRFMP) (2020/03), MFA (2020/08), SNB-FRB-BIS High-Level Conference on Global Risk, Uncertainty, and Volatility (2019/11), 20th IWH-CIREQ-GW Macroeconometric Workshop: Micro Data and Macro Questions (2019/10), Conference on Advances in Applied Macro-Finance, Istanbul, Turkey (2018/12)
 Global Risk Aversion and International Return Comovements
I establish three stylized facts about global equity and bond return comovements: Equity return correlations are higher, asymmetric, and countercyclical, whereas bond return correlations are lower, symmetric, and weakly procyclical. To interpret these stylized facts, I formulate a dynamic no-arbitrage asset pricing model that consistently prices international equities and bonds; the model features various time-varying global macroeconomic uncertainties and risk aversion of a global investor. I find that different sensitivities of equity returns (strongly negative) and bond returns (weakly positive or negative) to the global risk aversion shock can explain the observed comovement differences. Global risk aversion explains 90% (40%) of the fitted global equity (bond) comovement dynamics.
◘◘ Annual Workshop on Investment- and Production-Based Asset Pricing, Olso (scheduled), 2020 AEA (2020/01), Stanford SITE "Session 8: The Macroeconomics of Uncertainty and Volatility" (2019/08), 2019 UBC summer conference (2019/07), University of Zurich (2018/12), University of Luxembourg (2018/12), London Business School (2018/09), 2018 E(uropean)FA (2018/08), 2018 CICF (2018/07), Boston College (Carroll), Cornerstone, Emory (Goizueta), Georgetown (McDonough), Goldman Sachs, Johns Hopkins University (Carey), University of California (Riverside), University of Minnesota (Carlson), University of Notre Dame (Mendoza), University of Oklahoma (Price), University of Southern California (Marshall), University of Wisconsin Madison, Finance Ph.D. Seminar, NYU Stern (2017/12), Finance Faculty Free Lunch, Columbia Business School (2017/11), Ph.D. Seminar, Columbia Business School (2017/10), Financial Economics Colloquium, Econometrics Colloquium, Columbia University (2017/10, 11), Federal Reserve Bank of New York, New York (2017/09)
◘◘◘ Dissertation Award, Federal Reserve Bank of New York, New York 2017
 Do Analysts Act On Fiscal Spending?
(with Yang You)
We document that actual fiscal distributions from the Federal government to firms are undetected in analyst forecasts of firm earnings. We first construct a transaction-level procurement contract database for all transactions using data from a publicly-accessible government website. Using a final sample consisting of 1239 public firms between 2008Q1 and 2022Q3, we find that a one standard deviation (SD) increase in the log transaction amount -- especially across firms -- significantly predicts an around 2.6%-3.9% higher chance of the actual earnings per share beating the median forecast, a 0.10 SD increase in earnings surprise, and an increase in daily returns of 10.36 basis points on earnings announcement day. Consistent with a missing information mechanism, the earnings surprise predictability significantly weakens for (a) firms with more forecasts, (b) firms whose analysts ask more questions about and show more interest in government contracts during conference calls, and (c) periods with active fiscal debates -- all situations in which analysts might have access to better information about government contracts. Finally, a long-short portfolio based on firms’ government contract transaction amounts earns 87 (35) basis points per month among small (all) firms; cash flow information about public procurement from small firms should be less known to the market, which explains their current under-pricing.
◘ Paper [FIRST DRAFT COMING SOON]
◘◘ 2023 AEA (scheduled)
◘◘◘ Boston College Kelley Research Grant 2022-2023
 Growth Dynamics at Different Stages of Development
(with Geert Bekaert)
First draft coming soon. This paper characterizes growth rates at different stages of economic and financial development of 180 countries over 55 years (1960-2014). We present several static stylized facts. In particular, low development stage appears with high growth volatility and positive growth skewness, which is potentially caused by significant growth spurts in these country-years.
 Uncertainty Shocks and Personal Investment: Evidence From a Global Brokerage
We use novel data from a global retail brokerage to study how shocks to uncertainty affect personal investment around the world. We consider three empirical uncertainty shocks that have been proposed by the literature — terrorism, natural disasters, and large stock price jumps. We then consider how within-country uncertainty shocks affect investment and delegation in global assets on the brokerage. Importantly, the within-country uncertainty shocks (e.g., a natural disaster in Spain) are unlikely to affect world asset fundamentals (e.g., the SPX500). This allows us to isolate the effects of uncertainty shocks on personal risk aversion from their effects on asset fundamentals. We find that uncertainty shocks have scant effects on personal investing. They primarily affect delegation to asset managers on the brokerage, but that the direction of the effects depends on the type of uncertainty shock. Investors increase their delegation by 5% following terrorist activity and reduce delegation by 8% following positive and negative stock market jumps. These findings suggest that the exogenous uncertainty shocks proposed by the literature have heterogeneous effects on individual investment.
◘◘ 2019 ANU-RSFAS Research Camp (2019/12), Boston College Brown Bag (2019/11)
◘◘◘ INQUIRE Europe Research Grant, 2020
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